US Blue-Chip Stocks On Pace For Worst Daily Drop Of Year

KristinaPeterson

NEW YORK (MarketWatch) -- Intensifying worries over Europe's precarious financial stability sparked a broad sell-off in U.S. stocks Tuesday, putting blue-chip stocks on pace for their worst drop of the year.

The Nasdaq Composite took the biggest hit. Considered a leading indicator of the market's direction, the technology-heavy measure dropped 3.2%, putting it on track to close with its largest decline since January 2009. Tech giants including computer giant Microsoft fell 3.5%, Amazon tumbled 5.1% and Google slid 3.6%. American depositary shares of Vodafone Group tumbled 3.7%.

The Dow Jones Industrial Average sank 271 points, or 2.4%, to 10880, on pace for its biggest one-day drop of the year. Tuesday marks the Dow's fifth day of triple-digit moves in six sessions. The measure is now at its lowest since April 8.

The index's most economically sensitive components, which had led Monday's rally, reversed Tuesday to lead its declines. Industrial giant Caterpillar dropped 4.6%. Aluminum giant Alcoa was also down 4.5%, hurt by declines in metals futures. Tech components also weakened; Hewlett-Packard slid 3.4%, while Cisco Systems dropped 3.1%.

The Standard & Poor's 500 index was off 2.2%, with all of its sectors in the red, led by materials and industrials.

The broad drop follows a decline in European markets reflecting a lack of confidence in the Greek bailout package. The euro fell to a 12-month low against the dollar as doubt surged over whether the Greek government can carry out the strict austerity measures required in the aid package.

"Really what we're looking at is a total restructuring of government debt across the eurozone and the faster everybody gets on the board with that, the easier it'll go down," said David Keator, partner of the Keator Group. "The euro is sinking because we don't know where the bottom is fiscally with the European countries."

Although the German government negotiated to provide the lion's share of the European Union contribution to Greece, concerns remain over whether Chancellor Angela Merkel will get the electoral backing for the bailout.

"The real issue is the survival of the euro," said Stephen Lieber, chief investment officer of Alpine Dynamic Balance Fund. "This is for the first time, on a massive scale, calling into question the logic of the single currency for a variety of countries with different economic circumstances."

The market has fluctuated in recent days between relief over the package and skepticism over whether it will be enough to stop Greece's debt issues from spreading.

Meanwhile, investors flocked to the dollar and Treasurys for safety. The U.S. Dollar Index, reflecting the U.S. currency against a basket of six other currencies, jumped 1%. Treasurys rose, pushing the yield on the 10-year note down to 3.62%.

The strengthening dollar may start to cut into U.S. profits, Lieber noted. "If the dollar rises here, we'll have diminished export opportunity and other countries may become more competitive."

Reports of bigger-than-expected increases in pending home sales and new orders for U.S. manufactured goods did little to assuage investors' concerns.

Goldman Sachs edged down 0.2%. Goldman Sachs and the Securities and Exchange Commission may begin settlement talks as early as Tuesday over the agency's civil charges against the firm, Fox Business Network's Charlie Gasparino reported on the network's website, citing people familiar with the matter.

Apple fell 3.3%. U.S. antitrust enforcers are taking a keen interest in recent changes that the company made to its licensing agreement with iPhone application developers and are likely to open a preliminary investigation into whether the company's actions stifle competition in mobile devices, according to people familiar with the situation.

Merck and Pfizer were among the Dow's few components in positive territory. Merck climbed 1.6%, and Pfizer gained 2%. Both drug makers reported declines in first-quarter profits, but their sales and earnings excluding certain costs exceeded Wall Street expectations.

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